BEIJING NEW BUILDING MATERIALS(000786)：REVENUE RESILIENT IN 2022;WATCH UPSIDE SURPRISE IN SALES VOLUME AND PRICE IN 2023

　　2022 results missed our expectations
　　Beijing New Building Materials (BNBM) announced its 2022 results: Revenue fell 5.5% YoY to Rmb19.9bn, and attributable net profit dropped 10.6% YoY to Rmb3.14bn. In 4Q22, revenue fell 10% YoY to Rmb4.6bn, attributable net profit rose 0.6% YoY to Rmb792mn, and recurring net profit fell 51.6% YoY to Rmb362mn, slightly missing our expectations due to lower GM.
　　1) Gypsum board segment remained solid: In 2022, sales volume of the firm’s gypsum board segment fell 12% YoY to 2.09bn sqm, and revenue dropped 3% YoY to Rmb13.4bn, implying that ASP of gypsum boards rose 10% YoY to Rmb6.4/sqm, remaining solid. BNBM’s market share in the gypsum board industry rose 0.4ppt YoY to 68%. Due to falling demand and rising costs, the GM of gypsum boards fell 2.3ppt YoY to 35% in 2022. In 4Q22, sales volume fell around 3% YoY to approximately 500mn sqm due to COVID-19, but blended GM fell 1.8ppt QoQ to 27.4% in 4Q22 (-4.5ppt YoY) due to structural changes and falling ASP.
　　2) Keels slightly under pressure: In 2022, revenue from keels fell 8.7% YoY to Rmb2.52bn (sales volume -7% YoY), and GM rose 0.5ppt YoY to 19%.
　　3) Increased pressure on the waterproof business: Revenue from the waterproof business fell 19% YoY to Rmb3.14bn, and GM dropped 6.6ppt YoY to 17% due to rising raw material prices such as asphalt. The full-year profit was about negative Rmb98mn, and accounts receivable days increased 50 days YoY to 223 days.
　　4) GM fell and net margin remained largely flat: GM fell 2.6ppt YoY to 29.2% in 2022. Selling, G&A, and R&D expense ratios rose 0.1ppt, 0.3ppt, and 0.1ppt YoY to 3.8%, 5.1%, and 4.3% due to weakening expense dilution, but net margin fell only 0.9ppt to 15.7% due to compensation received for land repurchase (Rmb380mn).
　　5) Cash flow remained strong: The firm's accounts receivable turnover days rose by two days YoY to 35 days, but its accounts payable days also increased by two days YoY, resulting in Rmb3.66bn in net operating cash flow (net operating cash flow-to-net profit ratio at 117%) and debt-to-asset ratio at 25%.
　　6) Dividends flat and payout ratio rising: Total cash dividends stayed flat YoY in 2022, implying a payout ratio of 35% (up 3.8ppt YoY). The company proposed a final dividend of Rmb0.66/sh for 2022.
　　Trends to watch
　　Price hikes in early 2023 demonstrate pricing power; sales volume and prices to rise in full-year 2023. In 2023, gypsum board demand is likely to see a gradual rebound amid the recovery of commercial activities as we expect service consumption (restaurants and hotels) to outperform overall consumption. Meanwhile, the firm, which has a market share of nearly 70%, raised the price of gypsum board products at the beginning of 2023. The raw material cost of waste paper has been falling since the beginning of this year, which, combined with the decline in average coal prices, may create an upside surprise in 2Q23. If downstream consumer demand continues to recover in 2H23, we expect waste paper prices to rise sharply in 2H23, driving further price hikes of BNBM's gypsum boards.
　　Financials and valuation
　　Given price hikes for gypsum boards and their falling costs, we raise our 2023 EPS forecast 23% to Rmb2.49 and introduce our 2024 EPS forecast of Rmb2.9. The stock is trading at 11.5x 2023e and 9.8x 2024e P/E. We maintain OUTPERFORM and raise our TP 20% to Rmb36, implying 14.5x 2022e and 12.4x 2023e P/E, offering 26% upside.
　　Risks
　　Recovery of commercial-building segment and/or implementation of price hikes disappoint; waterproof business disappoints.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。